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Have you looked at the Irish case?

Brian Ferguson

Their corporate tax rate is 12.5%, and the openness measure is 89%. If you extended that line way down to the bottow-right, they'd be pretty close.

Is the return so easy to get? X%, and if you're getting less there is some other investment somewhere in the world where you can automatically move it to? Or, as the case may be, not invest in Canada becasue you know of an automatic opportunity somewhere else?

You're assuming those returns are available, are known, and are as safe and liquid as investing in Canada. For that matter you're assuming that investment capital is very liquid and that it is in a position to pick and choose and never has to take less than the average return. I'd suggest that that's certainly not the case, especially not in the current environment, where investment supply is less than investment demand (Bernanke's Global Savings Glut).

I'd certainly agree that capital markets aren't completely flexible, which is why governments can still get away with corporate tax rates that are strictly positive. But they're definitely moving that way, and policy-makers have to take that trend into account.

Capital once it is invested in a factory for example is not so simple to "simply shut it down and move their capital elsewhere."

Youhave to figure out the costs of shutting down the factory, and the price you can get for the factory from another buyer, and only then compare your leftover capital from what you can get from opening a new factory elsewhere.

There is a significant amount of "trapped" capital that can be effectively stolen by tax increases. Or by coercive unions for that matter. Witness GM which would love to simply shut its factories down and go somewhere non-union. But this is expensive and must be weighed vs the costs of simply paying wages far above competitive market wages.

But as for new investment, the article is correct. Capital can and will seek the highest return. If that means government paper in the US, then that is where it will go. No one knows what the returns on new physical investment like a factory will be. Therefore every other alternative to safe US government paper must be weighed by higher returns if things go well vs lower or negative returns if things go poorly. Investors must use their best judgment, which is to say they must guess. Government attitudes, or voter attitudes, of "Stick it to those rich bastards" simply ensure new capital goes elsewhere since even if things look attractive enough now, they stand a good chance of getting worse later.

Don't we need to take into account other factors too -- for example, Canada's semi-universal taxpayer-supported medicare system means that a car manufacturer deciding whether to build a factory in the USA or Canada would be inclined to choose Canada because he won't have to worry about huge health insurance payments for employees and pensioners...Corporate tax rates are only one of several criteria for people making direct industrial production investment decisions. Socialization of health care payments and portability of pensions and stability of currency and law may be better areas to work on if the goal is to attract investment. (This might include disconnecting pensions from the issue of which employer you happen to be working for, and attaching pensions as portable accounts to each person -- a CPP that is your whole pension pool, with your employers' responsibility limited to contributing some money to your CPP pension funding during your term of employment, if at all.)

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